Israeli Prime Minister Benjamin Netanyahu and President Barack Obama met twice during a dramatic evening in the White House, but no signs emerged of a breakthrough in a row over Jewish settlements.

Obama hosted Netanyahu in the Oval Office late Tuesday for 90 minutes, but with the two sides embroiled in their most testy disagreement in years, unusually did not appear before the cameras with his visitor.

As an evening of intense diplomacy developed, Netanyahu then asked to consult privately with his staff, a US official told AFP on condition of anonymity.

After just over an hour ensconced in the Roosevelt Room in the West Wing, the Israeli leader asked to see Obama again, and the president returned from his family quarters for a second Oval Office encounter of 35 minutes.

Shortly afterwards, Netanyahu swept away from the White House in his limousine, without glancing at reporters.

White House officials declined to describe the tone or the substance of the talks or to say if any agreements had been proposed or reached.

Netanyahu's office said Wednesday that there was a "good atmosphere" in his meeting with Obama.

The two leaders "met privately for approximately 1.5 hours, in a good atmosphere," the office said in a statement, adding that advisors to both men were holding follow-up discussions that would continue throughout the day.

Earlier, Netanyahu, joined at the talks by Defense Minister Ehud Barak, took a hard line on US demands for a freeze in settlement construction, saying Washington's stance could delay peace talks with the Palestinians for a year.

"If the Americans support the unreasonable demands made by the Palestinians regarding a freeze on settlements in east Jerusalem and the West Bank, the peace process risks being blocked for a year," Netanyahu said.

"Relations between Israel and the United States should not be hostage to differences between the two countries over the peace process with the Palestinians," he was quoted as saying by Israeli media.

The talks, which likely also focused on Iran's nuclear challenge, as Washington tries to focus the world on framing tough sanctions towards Tehran, took place amid one of the most corrosive US-Israeli rows in decades.

Netanyahu declared late Monday in a passionate speech to the powerful US-Israel lobby AIPAC that "Jerusalem is not a settlement," spelling out an apparent message of no compromise towards Obama.

The United States has warned that building more Jewish settler homes in annexed east Jerusalem directly undermines US credibility as a mediator and efforts to get "proximity" talks started between Israel and the Palestinians.

Washington reacted angrily when Israel's government announced the construction of 1,600 settler homes in the eastern part of the city while Vice President Joe Biden was visiting the country.

Despite Netanyahu's apology over the timing of the announcement, the row has rumbled on for two weeks -- with neither side showing signs of backing down.

Even as Tuesday's White House meeting went ahead, it emerged in Israel that local officials had given final approval for the building of 20 apartments for Jewish settlers at the site of a former Palestinian hotel in east Jerusalem.

Netanyahu says he is simply following the policies of all Israeli governments since 1967, when Israel won a war with its Arab neighbors and seized east Jerusalem, which it later annexed in a move not recognized by any major world power.

Israel claims all Jerusalem as its eternal capital. The Palestinians want to make the predominantly Arab eastern sector of the city the future capital of their state.

Deepening the sense of crisis Tuesday, the Palestinians warned Netanyahu's position threatened to destroy hopes for serious peace negotiations.

"What Netanyahu said does not help American efforts and will not serve the efforts of the American administration to return the two sides to indirect negotiations," Palestinian Authority spokesman Nabil Abu Rudeina said.

Netanyahu met Obama as his government was embroiled in another row, this time with Britain, over the use of fake British passports by an Israeli hit squad blamed for killing Hamas commander Mahmud al-Mabhuh in Dubai.

Britain ordered the expulsion of an Israeli diplomat over the affair. Israel, which has said there is no evidence its spy agency Mossad is to blame, said it was disappointed at the decision.

Despite criticizing Israel over settlements, Secretary of State Hillary Clinton told AIPAC on Monday that US support for Israel's security is "rock solid, unwavering, enduring and forever."